Cut Taxes With An Energy-Efficient Home

If you're thinking home upgrades, this may be a good time to do them since you can take advantage of energy-efficient tax credits. For existing homes, federal tax credits are available for 30% of the cost, up to $1,500, for a range of renovations this year and 2010. Eligible work includes windows, doors, insulation, metal and asphalt roofs, HVAC, water heaters and biomass stoves, which include wood and pellet stoves.

Green Energy
Green energy systems, including geothermal heat pumps, solar panels, solar water heaters, small wind energy systems and fuel cells, offer tax credits of 30% of the cost with no upper limit. This rebate is available through 2016 for both existing homes as well as new construction.

You don't get the rebate until you file your tax return or get your rebate check. But the tax credit lowers your tax bill, or increases your rebate, dollar for dollar, unlike a tax deduction that just lowers your taxable income. Remember to keep records of work done and their costs. (The receipts you cram into your wallet could be replaced with cash come tax season. Don't miss 10 Most Overlooked Tax Deductions.)

A similar credit was around for 2007, but not for 2008. Keep in mind that energy efficient standards are now higher than in 2007. Some other rules: the products or renovations must be put into service during 2009 or 2010 and the $1,500 limit is the total for all qualifying upgrades done over the two years.

Energy Star Required
Materials like windows, doors and roofing must meet Energy Star requirements and strict conservation standards. Check the energystar.gov site to make sure your purchases qualify and that you don't get tripped up on government rules. Don't be misled by other "green" labels that are not certified and for tax credit purposes, are essentially meaningless.

Gas furnaces need an annual fuel utilization efficiency, or AFUE, of 95 or better; oil furnaces need an AFUE of 90 or better. Doors must have a manufacturer certification statement. You can check the company's website if you don't see a label. (Want to save even more? Check out Tax Credits You Shouldn't Miss.)

Windows and skylights purchased before June 1, 2009, need an Energy Star label to qualify for the tax credit. But here's the tricky part. If purchased after June 1, 2009, windows and skylights may not qualify even if they have the Energy Star label. They must have a U factor and Solar Heat Gain Coefficient, or SHGC, of 0.3 or better. Ratings must be certified by the National Fenestration Rating Council. Look for the NFRC label.

You might be able to get state tax breaks from energy-efficient appliances, including room air conditioners, furnaces, boilers, water heaters, clothes washers, dryers, dishwashers, refrigerators and freezers. Amounts, expected to be available in late 2009 or early 2010, are expected to range between $50 and $250.

Find Out More - Don't Miss Out!
Even local governments and utilities are giving green tax breaks. Energystar.gov has a useful tool for finding local rebates. The Database of State Incentives for Renewables and Efficiency also has detailed information at its website, dsireusa.org.

Some states waive sales taxes or offer low-cost loans. New York reduces property taxes of New York City residents who install photovoltaic solar equipment. Depending on when they are placed in service, solar purchases can catch up to 35%, capped at $62,500. California has been pushing solar energy through its "GoSolar" effort, offering tax rebates through utility companies. Those rebates vary according to the system's size, type of customer and other factors.

The Bottom Line
The federal government is sending $300 million to states for consumer rebates, but the states will decide the details. Considering the relatively small amounts, it remains to be seen if the household appliance rebates, or "Dollars for Dishwashers," will be as popular as the "Cash for Clunkers" program.